The storm is coming

Nov 21,2018

The semiconductor sector, which is responsible for generating growth in the Korean economy, is losing steam. The prices of mainstay dynamic random access memory (DRAM) are going down as well as shipments. China, the world’s biggest chip importer, is out to slap regulations on the dominant DRAM suppliers — namely Samsung Electronics and SK Hynix — as a part of its campaign to grow local industry. Their troubles will inevitably translate to the fragile Korean economy. The government must act fast to remove regulations, reform the labor market, and nurture new growth fields before it is too late.

The Philadelphia Semiconductor Index, a capitalization-weighted index comprised of 30 semiconductor companies, retreated 16.8 percent in October alone after the chip prices turned south. The spot DRAM prices in 4-Gigabit DDR that fetched $4.07 in June fell 14 percent to $3.50 last month.

Exports are also shaking. Exports increased 21.5 percent on year to $11.78 billion in October. But when considering that this October had five additional working days, daily shipments actually decreased by 4.4 percent on year. The supercycle in memory chips fueled by supply shortage and overwhelming demand that arrived from the second half of 2016 is coming to an end. That means trouble for the Korean economy, where semiconductors make up 21.5 percent of exports.

Beijing claims it has plentiful evidence to punish three major companies — two from Korea and Micron Technologies of the United States — on antitrust grounds. China is in the midst of a campaign to bump up its self-sufficiency rate in semiconductors to 70 percent by 2025 from 10 percent in 2016. The ascension must make prey out of dominant players like Samsung Electronics.

The Korean economy has been excessively reliant on semiconductors. A slowdown in the industry will further affect the battered domestic front in output, investment and employment. The government repeatedly vowed to groom new industries and innovations, but no meaningful actions have followed. There is little progress in reforming the labor market or regulations. The plan to extend flextime has hit a snag due to strong opposition from union groups. If a country cannot make a single revision to the system or law, how can it weather a tsunami of challenges?

The government must stop clinging to its ideology-driven policy. Companies must be free to run and fly. To bring life into the sagging economy and business activities, actions must be made on regulatory and labor front. The storm is coming. There is not much time left.